Quote:
Originally Posted by Dunerunner
It's a good idea for lending institutions to reset the ARM's
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It would be, except that they've already sold off the loans as CDOs. This means they chopped up the loan "profit" and sold it off to the market, bundled with hundreds of other loans. The banks don't really
care that their mortgages are going belly up, because they sold them off to the sucker down the road who is now taking most of the hit.
Of course many of the same banks then went out and bought other CDOs from other banks as investments, and got hit all the same. Or, they invested in other things that invested in the CDOs a hop or two down the line. That why this is so dangerous. If it were just the banks, some would implode, and this would be over. Instead we're seeing this domino effect where one bank implodes, and then an insurance group implodes, then a hedge fund, then a trading firm, and then another bank...
<Political content=quasi>
Quote:
Originally Posted by vwW12
But have you ever wondered who is it that made it legally mandatory for banks to give people whose income evidence consisted of welfare checks and unemployment checks?
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Sigh... Wonderful
opinion piece you link to there. And yes, it is an opinion piece, it say so right at the top of the page. I love how Fox-rons feel the need to blame
one party for this, especially since then tend to blame the party that was
in the minority in both the house and senate at the time. The way I see it, the votes show that
both parties voted overwhelmingly to pass the laws that allowed banks to lower their requirements on giving out loans. (Just like
both parties voted to repeal the
Glass/Steagall act, allowing banks to make the CDOs that are now causing this domino effect.)
Oh.. And it didn't
mandate banks give loans to anyone. What it did do is say banks have to follow the same set of rules for evaluating who gets loans
based on the loan value. It put rules into place to prevent banks from loaning to people when the house value was $300K, but not loaning to people 3 blocks over where the value was $70K. And it said if you require income to be X% of the house value for the $300k house, you can't require a different percentage for the $70K house.
Now you can debate as to weather those rules were the right way to go, or if they should have put some other thing in place. Monday morning quarterbacks all over the place are prone to do that. But
at the time there was enough agreement from
both parties that it passed and became law. This was when the house and senate were of one party, and the president was from the other, back in the mid to late 90s. (hint hint!)
</Political>
And let's be honest here, it's not the $70K homes that are breaking the market. It's the $300K+ homes that were loaned to people on 30+ year ARMs or "interest only" loans that jumped after 5 to 7 years. Many times they were given to people who weren't making enough to cover the projected payments
when the loan was made. That wasn't a federal requirement, it was bankers being greedy.
I'm still not clear how ARMs are going up, since the Fed's been doing nothing but cutting the rate for the past few years. I can see it in the case of "interest only" loans (which are criminally dumb), but for all ARMs? I'd love to know what people with IO loans were thinking... Don't pay off your debt, just pay the interest at first, and hope your wages get higher to cover the jump when it happens? This despite the fact that wages have been flat to declining for over 7 years now? Yikes.
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